QE3: Fed launches new round of stimulus

With the Teton Mountains behind them, Federal Reserve Chairman Ben Bernanke, left, and Bank of Israel Governor Stanley Fischer walk together outside of the Jackson Hole Economic Symposium, Friday, Aug. 31, 2012, at Grand Teton National Park near Jackson Hole, Wyo. Bernanke made clear Friday that the Federal Reserve will do more to boost the economy because of high U.S. unemployment and an economic recovery that remains "far from satisfactory." (AP Photo/Ted S. Warren)
— AP

With the Teton Mountains behind them, Federal Reserve Chairman Ben Bernanke, left, and Bank of Israel Governor Stanley Fischer walk together outside of the Jackson Hole Economic Symposium, Friday, Aug. 31, 2012, at Grand Teton National Park near Jackson Hole, Wyo. Bernanke made clear Friday that the Federal Reserve will do more to boost the economy because of high U.S. unemployment and an economic recovery that remains "far from satisfactory." (AP Photo/Ted S. Warren)
/ AP

The Federal Reserve announced today that it would buy $40 billion of mortgage-backed securities per month as a way to keep lending rates low and encourage consumers and businesses to invest. This is the third time the Fed has engaged in bond buying - known as quantitative easing- since the economic downturn. The Fed did not give an end date to when it would stop buying the bonds.

"We want to see more jobs, we want to see lower unemployment, we want to see a stronger economy that can cause the improvement to be sustained," Federal Reserve Chairman Ben Bernanke said in a news conference. "It's not just a one month or two month phenomenon. We're not going to be looking for little wiggles in the numbers that are going to cause us to radically shift our policy, so we at least to this point have decided to define it qualitatively."

The Fed said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist.

"The Committee will closely monitor incoming information on economic and financial developments in coming months," The FOMC said in a statement. "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."

The bond-buying could make the already near-all-time low mortgage rates even lower. A 30-year fixed-rate-mortgage is averaging 3.55 percent, down from an average of 4.09 percent at this time last year, Freddie Mac announced today. Also, a 15-year fixed-rate-mortgage is averaging 2.85 percent. Last year at this time, the 15 year fixed-rate-mortgage averaged 3.3 percent.

“Rates are already low and I don’t think that this is going to drive them a lot lower,” said Michael Lea, director of the Corky McMillin Center for Real Estate at San Diego State University. “I think that the major issue is that a lot of people just have difficulty qualifying for a mortgage.”

Alan Gin, economist at the University of San Diego, said he didn't think the quantitative easing would hurt the economy, but the impact would be marginal at best.

The Fed's action comes amid a slowdown in hiring across the country. Job growth has waned since the first three months of 2012, when the nation's employers averaged 226,000 new jobs each month. The nation has added an average of 94,000 jobs over the past three months.

The national unemployment rate fell from 8.3 in July to 8.1 percent in August, with the U.S. adding 96,000 jobs. It fell largely because 368,000 stopped looking for work and were no longer counted as part of the labor force.